China makes a Great Leap Forward into electric vehicles; will corporate starvation result?

I was in Shenzhen last week at the 25^th World Battery, Hybrid, and Fuel Cell Electric Vehicle Symposium and Exhibition (That’s a mouthful. Hereafter EVS25), an international conference and electric vehicle show. www.evs25.org

There were some glitches—like the tiny room allocated the hugely-popular workshop on plug-in hybrid electric vehicles, and the non-functioning equipment at the same workshop. But the event was a packed with government and industry folks, all talking about electric vehicles and batteries. There were lots of people from the U.S. Department of Energy, www.doe.gov  one indication of how important the whole EV sector is becoming. 

There were also plenty of Chinese government officials. The details of their message were confusing, at least to me. But the message was clear: China aims make its auto industry the world leader in electrification technology and standards.

What I’m wondering is if this is another Great Leap Forward.

Both Ouyang  Minggao, a Tsinghua University professor deeply involved in forming the government’s new energy vehicle strategy, and Xiao Chengwei, a battery expert at the Ministry of Science and Technology’s Key Lab for Power Sources, presented an overview of the government’s electrification strategy.  It emphasizes developing electric vehicles first in two areas: fleet vehicles, especially buses, and mini-vehicles.

That will lead to the second generation of EVs, which will be passenger cars, they said. What?!? Why are all the automotive manufacturers in China launching all manner of electric passenger vehicles, then?

It seems that hybrid passenger cars are to be developed concurrently with full electric buses and mini vehicles, leading to a second generation full electric passenger car.  And because China loves numerical shorthand names, (You are permitted to roll your eyes now, as I am doing.) the strategy is called the “three verticals” and the three horizontals.” The three verticals are battery electric vehicles, fuel cell vehicles, and hybrids. The three horizontals are battery technology, electric motors, and controls. At least that’s what Ouyang said at EVS25.  The interpretation was slightly different in a speech he gave in October of this year at a forum in Shanghai sponsored by General Motors.  Same basic idea, though.  http://www.gmexpo2010.com/forum/en/node/405

China figures such an important task is waaay too important to be left up to market forces (especially considering there isn’t a market for these cars yet), or to be left in private hands.  Ouyang said in the October speech:

“In order to elevate the strategy of developing electric cars from a corporate or industry strategy to the height of national strategy, ‘vehicle electrification’ strategy must fall under the general guidance of collective development, and keep pace with the transition and transfiguration of fuel-efficiency and new-energy cars. Governments will directly intervene to breed new industries, striving to keep pace with international goals that, by 2015, see China with some 1 million electric cars in use.”

That includes up to 300 million light electric cars, according to his presentation. Okay, I’m not sure what exactly a “light electric car” is. But, the rest are likely buses and/or mini EVs.

Actually, my head spins a bit trying to sort out China’s very ambitious plans for new energy vehicles. The exhibition was full of mini electric vehicles produced by companies who previously had no experience making vehicles. But, the government is encouraging minis, so companies jumped right in. “We see a good business opportunity,” several of the companies told me.

Shandong Bidewen Power Technology Co. Ltd. makes electric bikes and motorcycles. Now it makes mini cars too!

There were also plenty of hybrids and pure electric vehicles from the major automakers.  Some of them, such as BYD, were also showing electric buses since the government is promoting electrification in the public transport sector.

Is this another Great Leap Forward, as Mao’s attempt to push China’s modernization by promoting back yard steel mills and collectivizing agriculture, among other measures, was known?  His reasoning was that China had lots of people, so people power should be the modernization force. Widespread starvation resulted from attempts to organize agricultural into communes during the GLF.  

Some companies may starve to death as a result of this NEV Great Leap Forward. Too many are rushing into the EV segment (too many battery manufacturers, as well), in a market that can’t support them all. Does this mean the strategy will fail?

Although I am as always skeptical, I am also influenced by a conversation I had with my friend Mark Clifford, the executive director of the Asia Business Council in Hong Kong. www.asiabusinesscouncil.org  So what if some businesses fail, he said. That’s how it works. And China always rushes into things this way, Mark pointed out. (Like a “swarm of bees” as a friend of mine in Kunming said back in 1992 when everyone was going into small scale private business.)

Okay, some of these companies will survive, and maybe even thrive. I am, however, skeptical that China will achieve the technological breakthroughs it desires on the tight time frame it has set. Of course, as I pointed out in earlier blogs, Chinese companies will get some help from foreign companies with good technology. Indeed, “cooperation” was a buzzword at the symposium.

Some will also fail, if the government lets them. It is having trouble rationalizing the regular auto sector; how will it fare with the EV sector?

The next few years will be a roller coaster ride that I’ll be on voyeuristically, at least.